Domestic manufacturers suggest import duty at par with sales tax

LAHORE: Domestic manufacturers on Friday put forward proposals to curb under-invoicing and smuggling for a level playing field, without being unfair to genuine importers.

They were speaking at a seminar organised by Pakistan Industrial and Traders Associations Front (PIAF). They said that all efforts to curb smuggling have failed, and under-invoicing was practiced to save duty and sales tax which deprived the government of a big chunk of revenue.

Besides, under-invoicing also crowds out the domestic products from the local markets. They said the massive scale of under-invoicing from China at least has been documented by the fact that Pakistan’s official imports from China are almost $3 billion short than the official exports of China to Pakistan.

They said evidence in this regard was brought to the notice of Chinese government about a decade back. The promised Chinese reconciliation of export from China to Pakistan has never been done during the last 10 years.

The speakers also pointed out that import from other destinations were under-invoiced, but no documentary record like that of China was available. The custom officials in China have to be satisfied that the actual payment of the exported product has been made in their country. This is not the requirement of customs in countries that operate on the principles of free market economy.

Former president Lahore Chamber of Commerce and Industry (LCCI) Mian Anjum Nisar said the problem of under-invoicing could be resolved by fixing the same sales tax on imports that were produced in Pakistan.

He said for instance the sales tax paid by General Tyre on each size should be the sales tax on every imported tyre of identical size. He said the import duty could then be calculated on the basis of sales tax.

Nisar said this would resolve the problem of under-invoicing once and for all.

“Each industry association must be engaged and asked to furnish the details of sales tax paid by their members on their products,” he added.

Pakistan would begin exporting many of the under-invoiced products if this model was adopted. “Currently, surviving domestic producers are operating at 30 percent capacities and majority have closed down,” he added.

PIAF chairman Irfan Iqbal Shiekh said another way to curb smuggling was to maintain current duties but fix a minimum amount which would be compulsorily charged. “This system is in vogue in India, where minimum duty and sales tax is fixed if that amount is not recoverable from notified tariff,” he added.  Shiekh said for instance duty on any item could be 10 percent subject to a minimum of Rs200 whichever is higher. “The duties are fixed with minimum payable duty according to the price of identical product produced by the domestic manufacturing sector.”

Elaborating the duty on tyres, Shiekh said the minimum duty (or 10 percent duty whichever was higher) on a small car tyre could be Rs200, while on truck tyre, it could be Rs1,000.

All Pakistan LPG Marketing Association chairman Farooq Iftikhar said tackling smuggling would require greater efforts. He said the Federal Board of Revenue (FBR) would have to conduct raids on shops and bulk storage of goods and demand the import invoice or the name of the seller so they could verify the invoices.

He said the government should not do this in haste.